BoG to reduce policy rate in mid 2018 – ABSA Capital
Some analysts have suggested that the Monetary Policy Committee (MPC) of the Bank of Ghana could keep its rate at least until May this year – 2018.
According to the Africa strategist at Absa Capital, Ridle Markus, the decision to maintain the rate runs contrary to their expectation for 100 basis points cut.
The Governor of the Bank of Ghana, Dr Ernest Addison, addressing the media on Monday, January 22, 2018, stressed that the decision is to tame inflation.
But in an analysis of the policy rate announcement, Absa Capital argued that “the surprisingly cautious stance by policymakers was on the back of what they believe were emerging pressures in underlying inflation during the final months of 2017.”
Notwithstanding, we believe that with inflation on a firm downtrend, further policy easing is likely this year.
Bank of Ghana (BoG) MPC kept its policy rate unchanged at 20.00% at the conclusion of its meeting earlier today.
The MPC observed underlying inflationary pressures emerging during the last two months of 2017 and hence, to ensure the target of 8% +/-2pp is achieved, it opted for a cautious stance in contrast with our expectation for a 100bp cut.
Food and oil price pressures present a risk to the inflation outlook.
The MPC statement highlights the rise in food and oil prices that had pushed Ghana’s headline inflation from 11.6% y/y in October to 11.8% at December 2017. As a result, the bank’s core inflation rose from 12.3% y/y to 12.6% over the same period. Nonetheless, the bank’s weighted inflation expectations by business, consumers and the financial sector declined in December.
The statement further looked at some of the indicators from its Summary of Economics and Financial Data release for January 2018, which shows brisk economic growth, a decline in the total debt ratio and stronger external balances. Private sector credit extension (PSCE) has improved, rising by 12.8% y/y in December 2017 after bottoming at 6.5% in August. This follows the cumulative 550bp cut in policy rates in 2017.
Source: citibusinessnews.com
